In the grand scheme of things, graphite hasn’t
been in the public eye for very long. Although the carbon
mineral has been mined for centuries as an essential industrial
material for everything from pencils to refractories, graphite
and the investment community are still relative strangers.
The 2010-2011 spike in graphite prices and the accompanying
exploration boom created something of a speed dating frenzy
between junior graphite companies and investors, with the
former titillating the latter with corporate presentations
predicting stratospheric demand growth driven by emerging
applications. Back then, all eyes were on lithium-ion (Li-ion)
batteries, the enablers of the electric vehicle (EV)
revolution, which require high purity flake graphite in their
anode material, and graphene, the invisible, bullet-proof,
cancer curing, atomic carbon material that can be, but
isn’t always, made from graphite.
Four years on, and many of the relationships formed in the
heady days of rising prices and confidence that the good times
would last forever are on the rocks. Investors have become
impatient with the graphite market, which has been on a
downward trend since 2012 and graphite businesses are beginning
to realise that perhaps their financial backers never really
understood them after all.
"Investors want the next Apple or Google and that
isn’t going to happen in graphite," says Stephen
Riddle, CEO of privately-owned US-based graphite materials
company, Asbury Graphite Mills. Riddle is a long-standing
critic of efforts to shackle graphite investment to stock
markets. "I don’t really believe that graphite
mining is an industry the public belongs in. Once they realise
there isn’t going to be the next Google in
graphite, investors will lose interest and I believe the
juniors are just starting to comprehend this." Riddle admits
that his caustic brand of what many class as unwarranted
scepticism, but which he insists is merely hard line realism,
has caused many publicly listed graphite juniors to stop
"A lot of the junior companies are still quoting what I
would call 'fantasy land’ prices for graphite. The
only people they’re fooling are themselves and
maybe a few bankers and some shareholders," he says.
The decline in graphite prices has been one of the chief
deterrents preventing investors from putting money into
graphite companies. Most exploration businesses have had to
face up to the fact that public funding for projects has more
or less dried up and institutional lending is also hard to come
by. They note, however, that this state of affairs is not
confined to graphite but is part of the wider malaise affecting
the mining industry.
Riddle thinks that the macro commodities situation, while
alluded to by many, is understood by few. "A lot of juniors
don’t realise how bad the commodities industry is
and what this means for graphite pricing and demand. The steel
market is closely coupled with refractories and this is still
the biggest single end use for graphite. Right now, there is
surplus capacity in steel and in refractories, so until this
improves, graphite demand isn’t going to increase
substantially – even if you get growth in the battery
"A lot of companies have already gone very quiet. If
they can’t get public funding to keep going they
might delist, or be forced to delist," he warns.
Despite Riddle’s ominous turn of phrase, he
doesn’t think that sacrificing an exchange listing
is necessarily a bad thing. Taking a company out of the public
eye allows it to concentrate on its business without worrying
about its share price, or about adhering to the time-consuming
rules pertaining to public disclosures.
Rajiv Mediratta, a former graphite mining executive based in
India – a country where business is still largely in
the hands of private or state owners and is largely divorced
from the culture of small cap stock trading – suggests
that public listings have been responsible for what he
considers to be a distortion of the graphite sector.
"The corporates are under tremendous pressure to satisfy
their investors," he says. "I feel that investors are
escalating the situation we have now and it has become a very
strange industry. I am a little disappointed with the system
and how it’s happening and how people keep falling
into the trap."
Dirty business: Western graphite
companies are looking to
develop mines that meet high environmental and
standards in order to withstand supply chain
A mass exodus of graphite companies from stock exchanges has
not happened yet. Some companies have sold off graphite assets
or relinquished options, but broadly speaking, most have been
quietly carrying on. The last year has even seen two new
listings of pure play graphite companies.
In Canada, Toronto-headquartered Eagle Graphite Inc., which
has an operating flake graphite mine in British Columbia, began
trading on the Toronto Venture Exchange (TSX-V) in January. In
Australia, Brisbane-based Graphitecorp., which owns a deposit
in Queensland, has just successfully floated on the Australian
Stock Exchange (ASX) following an Australian dollar A$3.3m
($2.39m*) funding drive.
Those who disagree with Riddle that graphite should be out
of bounds to the public do so vociferously. Jon Belliss, head
of corporate broking at London-based Beaufort Securities Ltd,
which brokers for UK AIM-listed Madagascan graphite miner,
StratMin Global Resources Plc, insists that graphite is still a
perfectly viable investment proposition.
"I’m confused why the industry should be
labelled unsuitable for retail investors," he says.
"It’s a worldwide needed commodity." He concedes
that the lack of spot prices for graphite make the sector "a
little opaque", but denies that it has fuelled misinformed
investments. "Some people invest on a short-term basis while
others go in for the longer-term," he said, explaining the
investors regard shares in graphite companies as they would any
other listed entity – as opportunities with a certain
amount of risk.
One of the problems facing graphite companies trying to coax
investors to put their hands in their pockets is the fact the
funding criteria are often ephemeral. "Investors want
everything and nothing from a graphite company," one
London-based fund manager recently said. "They want to see that
a company can tick all the boxes but also that can think
outside these boxes and do something different. They also want
niche markets to be worth billions. I don’t envy
anybody trying to raise money in that business right
Qualifying a graphite project for the major graphite markets
– refractories, batteries and even graphene –
is regarded as a must by many, but this costs money and can
make juniors look unfocused and opportunistic if
"I’ve seen a lot of companies write their
strategies retrospectively," the fund manager said. "They
lurched from one press release to another in the hope of
gaining some traction, then tried to pretend that it was all
part of the plan."
Madagascar has been a source of
highly-prized graphite for
decades and could become an increasingly important
supplier, if projects underway in the country are
(Energizer Resources Inc.)
Schools of thought
However easy it is to criticise the promotional swagger of
many listed graphite companies, it is hard not to admire the
remarkable resilience of the industry’s small cap
players. Although many seem to be running on fumes, the sector
remains as crowded as ever and evidences a startling array of
The star of the share price show has for the last two years
been Syrah Resources Ltd, an ASX-listed exploration company run
from Melbourne with its flagship 81.4m tonne Balama graphite
project in Mozambique. At the end of November, shares in Syrah
were trading at around $A3.60/share, valuing the company at
more than A$825m ($596.2m) and making it the most valuable
junior graphite business in the world.
Based on the outcome of the feasibility study on Balama
released in May this year, the project’s
processing plant will produce 380,000 tpa graphite concentrate
from a feed rate of 2m tpa ore. Despite repeated warnings that
bigger is not necessarily better when it comes to a niche
speciality mineral like graphite, investors have been lapping
up Syrah’s story.
Aside from its mining plans, the company also has ambitions
to build a 25,000 tpa spherical graphite plant in the US and
recently scooped a sales and marketing agreement with Morgan
AM&T Hairong Co. Ltd, a Chinese spherical graphite
producer, to supply 9,000 tpa graphite for three
The company’s managing director, Tolga Kumova,
dismisses accusations from critics that Balama will flood or
maybe even destroy the graphite market, which is already facing
significant overcapacity, when it comes online, arguing that
the market will expand. "We believe that whilst larger flake
graphite used in traditional industrial purposes will have
modest growth in line with global GDP, smaller flake graphite
(-100 mesh) will experience significant growth as a result of
increased battery demand," he says.
His perspective hints at a "blow you, Jack" approach,
however. "Based on our feasibility study, Balama will be a
first quartile producer and hence we are confident that the
company can remain highly competitive throughout the peaks and
troughs of the graphite price cycle."
Others are less sanguine about the state of the industry.
The pullback in available funding for graphite projects has had
the effect of stopping the sector’s frontrunners
in their tracks, while many of those that were behind have
decided to use what cash they have left to bring themselves up
"The main thing that’s changed is the market
– everything has slowed down," says Greg Bowes, CEO of
Canada-based Northern Graphite Corp, a TSX-V-listed company
which is developing the 69.8m tonne Bissett Creek flake
graphite project in Ontario.
"All the juniors who have jumped into the sector have
created a lot of confusion among potential partners. Northern
was the first company to produce a feasibility study [in 2012]
and now there are six in this category. This is a pretty good
sample size and allows meaningful comparisons to be made. It
also gives a good indication of where the other juniors that
follow will end up," Bowes adds.
Although many juniors are on the face of things still
confident they will "end up" in profitable production, most are
honest about the challenges they face. "In the current
depressed market, nobody wants to put money into graphite,"
laments Chester Burtt, director at TSX-V-listed Focus Graphite
With its Lac Knife graphite project in Quebec, Focus was one
of the early champions of clean- and high-tech markets for
graphite and graphene, along with its strategic partner
business, Grafoid Inc. The company has however seen its share
price slide bumpily from a peak of Canadian dollar (C$)
1.55/share ($1.16/share) in early 2011 to C$0.09/share
Burtt however remains optimistic that a battery-bearing tide
will arrive sooner or later to lift all boats in the junior
graphite space. "At the moment, we’re just sitting
and waiting, getting our house in order," he says.
"We’re concentrating on getting all the necessary
permitting for Lac Knife and getting our financing. We are also
in discussions for a couple of offtakes."
Focus was criticised in pockets of the investor and Canadian
press earlier this year for announcing two offtake agreements
with Grafoid, which together committed Grafoid to taking up to
35,000 tpa Lac Knife concentrate.
"Some people see this as window dressing, but
it’s really not," insists Burtt.
"We’ve developed some really interesting materials
using our graphite and graphene to produce light, stronger,
more affordable polymers for the automotive sector, which
we’ve got out to some 20 potential customers right
now. Any one significant order would mitigate the financing
risks for the market."
Although Focus points to its diversity as the key to its
business model, the company’s approach
isn’t for everyone. Just before the Grafoid
offtakes were announced, it parted company with its CEO, Don
Baxter, owing to what Focus described as "a significant
divergence of vision".
Baxter, who previously served as president of Northern
Graphite, has since been installed as co-CEO of Alabama
Graphite Corp., another TSX-V-listed exploration company but
one of only a handful with projects in the US.
Alabama’s primary focus is its flagship Coosa
project, located in east-central Alabama. Despite making some
slightly bizarre claims to have found "naturally occurring
flake graphene" at Coosa earlier this year, since Baxter has
been at the helm, the company’s emphasis has been
rather more conceivable.
The premise of the company’s preliminary
economic assessment (PEA), due for release 27 November, is to
produce solely speciality, value-added graphite, rather than
run-of-mine concentrate. "Our plan is to split production into
two fractions – the larger flake will be used to
produce coated spherical graphite, or CSPG, and the rest of our
material will be used to produce micronised purified flake for
composites and powder metallurgy. The disposition of production
is intended to be 75% CSPG and 25% micronised purified flake,"
He is also keen to point out that Alabama intends to start
out small at Coosa. "We are not going to produce 50,000 tpa and
flood the market. That conventional business model employed by
other graphite development companies is unrealistic and
unsustainable. Instead, AGC will produce approximately 5,000
tpa – an amount the market can easily absorb
– as well as being a manageable rate, which will be
easily scalable as demand for our product increases," says
One company with big ambitions but which believes its entry
to the graphite market is likely to be incremental is Energizer
Resources Inc. The Toronto-based company, which has a main
board listing on the TSX, is developing the Molo flake graphite
project in southern Madagascar, which has a total measured and
indicated resource of 100m tonnes.
Madagascar has for decades been a recognised producer of
high quality graphite, with loyal customers in North America
and Europe preferring the material to that sourced from China.
"Madagascar could be the world’s largest graphite
producer – that’s a great opportunity,
but it has to be done in a sensible manner," says Brent
Nykoliation, senior vice president for corporate development at
The company published its feasibility
study, completed by Africa-focused mining services specialist
DRA Group, in February this year. The study, which is presently
being optimised, indicated an operating cost of $353/tonne
based on an annual average production rate of 53,000 tpa
concentrate – however Nykoliation says that Molo has
the advantage of tractability on its side.
"Molo has the flexibility to build big or small, as the
market dictates, at costs competitive with Chinese producers,"
says Nykoliation. Energizer estimates that Chinese operating
costs range from $350/tonne to $900/tonne, meaning that Molo is
at the bottom end of the production cost curve.
The project is designed on a modular basis, allowing
Energizer to tailor it to fluctuations in demand. "We can build
it big, but we don’t think that’s
realistic. We’re not going to go out there and try
to make a market that doesn’t exist," says
He admits that non-Chinese producers of graphite have a
tough job to establish themselves in the graphite market, with
the added onus of demonstrating "clean" supply chains, while
competing with China on cost.
"Price is king. If China can still produce graphite at these
amazing prices to environmental standards acceptable to end
users aligned with Western regulations, there’s no
reason you wouldn’t buy from China."
"But a lot of potential offtake partners, especially on the
battery side, are extremely sensitive to where their graphite
is coming from. They’re going to be looking for
the highest environmental standards in the world for
Batteries and refractories
Refractories, used to make steel, cement and glass, continue
to be the largest end market for natural graphite, although the
proportion of consumption accounted for by this sector looks
set to shrink as demand for industrial materials ebbs and
Li-ion battery usage grows.
According to IM’s "Natural
Graphite Report – Strategic Outlook to 2020",
refractories, foundry and crucibles accounted for 36%, or
400,000 tonnes, natural graphite consumption in 2014.
Metallurgy applications made up 25% of the market, while
batteries held an 11% share, with lubricants, parts and
components making up the rest.
The growth in battery consumption is expected to be
facilitated by the emergence of new mass Li-ion manufacturing
facilities, including Tesla Motors Inc.’s 500,000
unit capacity Gigafactory in Nevada and similar Asian plants
planned by the likes of LG Chem, Foxconn, Samsung and
The high price and limited range of
many EVs, including Tesla’s
electric models, have been partially blamed for slower
anticipated adoption of cleaner cars. (Source:Don
According to statistics compiled by industry reports agency,
Reportbuyer, worldwide shipments of Li-ion powered hybrid and
EVs stood at 792,800 units in 2014 and will maintain a robust
CAGR of 36.9% between 2014 and 2020. Consumption of Li-ion
cells was 299.3m in 2014 and is expected to register a CAGR of
33.1% to 2020 to reach a projected 1.7bn cells. Global revenues
derived from Li-ion battery sales is anticipated to post a CAGR
of 43.1% over the next five years to be worth $36.5bn by the
end of the decade.
While some believe that an upturn in graphite demand will be
the reward of a waiting game, others think that they can make
the pie bigger for themselves.
Syrah’s assertion that it can convert all of
its residual -100 mesh flake graphite that it fails to sell
elsewhere into recarburisers for the steel industry seems to
have been accepted by the company’s investors,
however efforts by other companies to penetrate new markets
elsewhere have met with tepid appreciation.
The question facing would-be producers of graphite for
speciality applications, such as in the nuclear industry, soil
conditioners and graphite foils, is whether they can make a
business out of supplying these markets. Small volume
businesses are unlikely to support mining operations at current
or even future price projections.
One notable trend in the last 12 months has been the
increasing attention given to graphite foils, flame retardant
and insulation applications, with proponents including
Syrah’s neighbour in Mozambique, Triton Minerals
Although nowhere near as frenzied as the battery or graphene
sectors, this area of the downstream graphite market is a
dynamic one. Germany-headquartered chemicals company BASF
produces a range of graphite-enhanced polystyrene (GPS) rigid
foam insulation through its US-based Neopor insulation
subsidiary and recently engineered a new range of GPS, Neopor
Plus, for the North American market.
Neopor GPS comprises of many small pockets of air within a
polymer matrix containing graphite. The graphite reflects
radiant heat energy like a mirror, increasing the
material’s thermal resistance, or R-value, thereby
improving energy and cost efficiencies for buildings using this
type of insulation.
An increased uptake of natural graphite in this sector
certainly has the potential to boost demand, but given the
fragile state of the construction industry at present, which is
already punishing graphite via weak demand for steel
refractories, it seems unlikely that this application area will
see a surge anytime soon.
Graphite foils, meanwhile, are used for sealing in the
chemical and petrochemical industries, as well as in the
energy, engineering and automotive industries.
Chris Richmond, managing director of UK-based Gee Graphite
Ltd, says that his company uses flake graphite sourced from
Germany and China, which is exfoliated and then calendared to
make graphite foils.
"The advantages [of using this type of material] are many,
but the key ones are flexibility, chemical and temperature
resistance, thermal conductivity, conformability and
availability," he notes, adding that natural graphite is also
generally accepted across many industries.
Richmond says that the main markets for Gee’s
foils are industrial gasketing and thermal management
applications, but notes that demand is not growing in
Mersen, a France-based carbon materials company, is
particular about the quality of its natural graphite. Mersen
produces its own range of flexible graphite foils called
Papyex. These are self-lubricating products that can resist
high temperatures, high pressures and chemical agents and are
therefore used to make screens, thermal insulation and sealing
materials for furnaces and as a protective interface in metal
casting, glass manufacturing and electronics.
"Flexible graphite is manufactured from purified natural
graphite crystallites. In order to obtain good quality flexible
graphite, it is necessary to select ores having crystallites
with dimensions greater than 180μm," explains Lawrence Lamy,
head of group communications at Mersen, adding that the best
graphite ores are mainly extracted in China, Canada, India and
In other markets, such as the nuclear industry, the
emergence of Generation IV pebble bed reactors is seen by some
as an opening for those who can supply high purity graphite
that can compete with the incumbent synthetic graphite on
As IM’s "Natural Graphite
Report" notes, the amount of graphite pebble bed reactors will
actually consume is still theoretical at present. There will be
initial start-up tonnages of graphite required to charge the
nuclear plants with enough pebbles/fuel and this fuel will
continuously be replenished with graphite, silicon carbide and
uranium. Estimates have ranged from 2,000 to 3,000 tonnes of
total graphite for every 440MW plant, equating to 1,400-2,100
tonnes of natural graphite, however this sector remains a
distant beacon for the natural graphite industry at
One common factor that has run right through the rise and
fall of the graphite industry as an investment proposition is
the notion that end users want to move away from their reliance
on Chinese material in favour of cleaner and more transparent
Asbury’s Riddle doubts whether this narrative
will prove a winner for those at the junior end of the market,
"Bashing China is not the answer. I’m no
supporter of China’s environmental practices, but
I don’t think this approach will help juniors," he
He also thinks that the story told by Western companies is
oversimplified and misrepresents the Chinese question. "In
China, the mining side is not really the issue –
it’s the chemical purification involved in making
spherical graphite that has most of the environmental issues.
Here, they are dealing with acids that must be handled and
recycled safely. Chemical purification and making purified
spherical natural graphite is a separate business from the
mining industry and it is misleading to suggest
it’s all the same business."
He also questions whether the claim made by many graphite
companies that Western battery companies will be prepared to
pay more for non-Chinese graphite will prove to be true.
"Battery makers expect new suppliers to be competitive on
price – not necessarily to have the lowest price, but
to at least be competitive. The anode is not a big percentage
of the battery cost, so maybe they will be willing to pay a bit
more, but not the extra costs needed to make some of these new
graphite mines profitable," he notes.
Despite these reprimands, Riddle says he hopes the junior
sector will remain well populated.
"We in the private sector are grateful to the public
companies for their investment in discovering so much graphite
ore because without them, the private sector would not have put
our resources in to discover it."
Riddle doesn’t want junior graphite companies
disappear. It is in the interests of companies like Asbury to
have these businesses around for the future, as graphite
reserves and supply sources will gradually start to run out and
shift to new regions. However, most in the junior sector know
that not all of them can make it and many may face tough
decisions sooner or later about what to do with their assets,
boards and shareholders.
*Conversions made November 2015